The UK Office for National Statistics (ONS) is set to publish the December Consumer Price Index (CPI) data on Wednesday at 07:00 GMT, a release closely watched by financial markets. Economists anticipate a mild pickup in inflation, suggesting price pressures may be regaining momentum.
Inflation remains a key input for the Bank of England (BoE) and a major driver of movements in the British Pound (GBP). With the next Monetary Policy Committee (MPC) meeting scheduled for February 5, markets largely expect policymakers to keep the Bank Rate unchanged at 3.75%. However, this week’s inflation data is likely to influence expectations around the future policy path.
What to expect from the December UK inflation data
Headline CPI is forecast to rise to 3.3% year-on-year in December, slightly above November’s 3.2%. On a monthly basis, consumer prices are expected to rebound by 0.4%, reversing the 0.2% contraction seen in the prior month.
Core CPI—which excludes volatile food and energy prices and is more closely monitored by the BoE—is expected to remain steady at 3.2% annually. Month-on-month, core inflation is projected to increase by 0.3%, following a 0.2% decline in November.
Potential impact on GBP/USD
At its December meeting, the BoE’s MPC voted narrowly (5–4) to cut the policy rate by 25 basis points to 3.75%, marking the fourth rate reduction of 2025. While policymakers acknowledged easing inflationary pressures and early signs of labour market cooling, they emphasized that any further easing would proceed cautiously.
The latest Decision Maker Panel (DMP) survey offered little to challenge the current outlook. Wage pressures remain persistent, limiting the scope for an earlier or more aggressive easing cycle. One-year-ahead wage expectations edged up to 3.7% from 3.6%, while realized wage growth continues to hover in the mid-4% range—levels still inconsistent with a sustained return of inflation to target.
Overall, the survey reinforces the view that the BoE is unlikely to accelerate rate cuts. Markets currently price in just over 42 basis points of easing this year, with no change expected at the February meeting.
Technical outlook for GBP/USD
From a technical perspective, XtremeMarkets Senior Analyst Frank notes that GBP/USD appears to be finding support near its year-to-date lows around 1.3340 (January 19). “A further downside move could open the door to the interim support at the 55-day SMA near 1.3309, ahead of the December low at 1.3179.
On the upside, a recovery could see the pair challenge the year-to-date high at 1.3567 (January 6). “Beyond that, resistance is limited until the September 2025 peak at 1.3726,” he adds.
Frank also highlights that momentum indicators remain constructive. The Relative Strength Index (RSI) has rebounded to around 54, while the Average Directional Index (ADX) near 20 points to a relatively stable underlying trend.
